“The most powerful force in the Universe is compound interest!” – Albert Einstein

Einstein was amazed at the effect compounding interest could have on an individuals wealth.  Had Einstein come across dividend growth stocks, the super compounders of investing, he would have truly been blown away.

Dividend growth stocks offer investors a compounding effect beyond any other type of investment.  There are not just one, not just two but in fact there are THREE ways a dividend growth stock can work at compounding wise investors wealth over time.

The Three Ways Dividend Growth Stocks Compound

  1. Stocks of any kind have a compounding effect through stock market returns.  An X% return this year builds upon the returns of last year, the year before that and many many years before that.  Each year the market increases it is compounding on prior years gains.
  2. The growth of the dividend rate has a compounding effect on our income.  An X% dividend growth rate this year builds upon the growth from all prior years.
  3. By reinvesting dividends, investors can take advantage of the third type of compounding.  Each additional share an investor purchases by reinvesting their dividend income will then begin earning it’s own dividend income.  These new shares allow us to earn more dividend income that investors can then put to work to earn even more dividend income.  Reinvesting dividends also allows wise investors the opportunity to take even greater advantage of the first type of compounding.

The Power of Compounding Dividend Growth Stocks

Take a look at the chart below to get an idea of how much power dividend growth stocks can have when it comes to growing your overall wealth.

Start Age End Age Total Years Annual Contribution Final Value
20 65 45  $                   5,000.00  $            2,726,021.66
25 65 40  $                   5,000.00  $            1,777,784.28
30 65 35  $                   5,000.00  $            1,152,224.48
35 65 30  $                   5,000.00  $                739,537.68
40 65 25  $                   5,000.00  $                467,284.89
45 65 20  $                   5,000.00  $                287,677.54
50 65 15  $                   5,000.00  $                169,189.14
55 65 10  $                   5,000.00  $                  91,021.36
60 65 5  $                   5,000.00  $                  39,453.50

The above chart assumes a person makes $5,000 investments each year.  It also assumes that the portfolio earns a 3.5% dividend yield that is reinvested and earns 5% market returns.

This chart shows the effect compounding can have for a dividend growth investor.  If one starts at a fairly young age, they can save a small amount of just $5,000 a year and grow their portfolio well above $1,000,000.

At retirement age, the investor can begin collecting the dividend income in cash rather than reinvesting.  This will allow the investor to live completely off of dividend income to cover their expenses and spending.

This chart is one example of what can happen over time for a dividend growth investor.  Depending on growth factors, the ending result could be much much higher.

The end result depends on 3 factors:

  1. Number of years one has to allow compounding to work.
  2. Amount invested each year.
  3. Growth rates of dividends and market value of stocks over time.

The larger any of those factors are, the greater amount of wealth one will have when they are ready for retirement.


There are many different ways dividend growth stocks compound to help investors create wealth over time.  Investors can create a very sizable nest egg by starting young, investing a portion of annual earnings, reinvesting dividends and earning a decent return from the overall market.

Don’t be delayed.  Take advantage of what Einstein believed to be the 8th wonder of the world!  Get the ball rolling and after time, compounding will start working miracles in your portfolio as well!

If you are interested in building a compounding wealth machine using dividend growth stocks then you should sign up for the free Dividend Growth Stock Investing Newsletter!

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15 Responses to Dividend Growth Stocks: Super Compounding Machines!

  1. This is the main reason why I’ve switch investing strategy to dividend investing! A “boring” stock like KO doubles its dividend every 6-7 years. This means that at your retirement, KO will probably pay over 10% dividend yield based on your cost of purchase! isn’t that amazing? :-)

    • Dan Mac says:

      It is truly amazing Dividend Guy. And by reinvesting our dividends along the way we can have our dividend income double even quicker.

      • Good article. A dividend growth stock is offering dividend income growth on steroids through

        1) dividend growth
        2) dividend reinvestment

        • Dan Mac says:

          I agree dividend growth investor. It’s almost like owning a CD where you are reinvesting the interest and every year the rate is going up. The risk we take though is that sometimes our marketvalue may go down but over the long run it will be worth the risk.

  2. Martin says:

    As Mike said above, for the same reason I have chosen this strategy. Not only I stopped losibng money by avoiding trading and predicting stocks movement, but I got income which I always wanted from my investments. Income I can take and invest into stocks. Dividend reinvesting vehicle can do this to me. But I am not satisfied and I want more. So this motivates me to invest more money (contribute to my accounts) and increase my dividend payouts and rinse and repeat! Excellent strategy. Playing with the numbers excites me enough so I am not calling it a boring investing at all.

    • Dan Mac says:

      I definately the dividend growth investing strategy is way better than trading and predicting stock movements. When I started out with the stock market I tried a few different strategies involving swing trading and trading using technicals that never worked out for me.

      Now that I’m a dividend growth investor I’m buying quality companies who I know how they make their money. They have a reputation for dividend growth. I understand at times my stocks will go down but I will have the dividend and history to help me weather any storms.

  3. If only I had cared and understood the power of dividend growth and DRIPs in my 20s. Still though there is plenty of time for most investors to take advantage of this factor.

    • Dan Mac says:

      It seems everyone wishes they had learned about dividend growth investing earlier! I got started just before turning 30 but wish I was using this strategy in my early twenties as well. But I think as long as we’ve found our way we still have plenty of time to build up good portfolios that will help us have great retirements!

    • Mike says:

      I started later then I would have liked. If you only take out 50% or 75% of your dividends you can reinvest the rest to compound year after year allowing your investments to continue to grow.

      Lets face it, most of us are (hopefully) going to live until our 90′s, perhaps longer. That’s perhaps another 30 years of your investments compounding past the age of 65. With luck and a good market your investment could double 3 to 5 more times. That’s nothing to sneeze at.

      • Dan Mac says:

        That’s a good point for those older investors needing the income right now. Hopefully you can still reinvest part of your dividends to continue getting compounding to grow your wealth! Good job Mike!

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  5. I only wish I started at age 20 :)

    Ah well.

    Based on your chart, I hope to have low-7 figures by age 65, that is, if I’m not drawing on my dividends sooner for an earlier retirement (which is the plan).

    There are only a couple of stocks that I cannot reinvest dividends (DRIP) yet. I’m DRIPping most CDN stocks and a few U.S. stocks such as KO, JNJ, PG and EMR.

    Motivating post my friend.


    • Dan Mac says:

      Thanks My Own Advisor! Remember if you get a later start you can always increase the effect by trying to save and invest more when you do get started! Personally I began dividend growth investing around the age 27 or 28. I think no matter when we get started we will always regret not starting sooner!

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